Problem 16-5 Amy Dyken, controller at Pronghorn Pharmaceutical Industries, a pub
ID: 2411255 • Letter: P
Question
Problem 16-5 Amy Dyken, controller at Pronghorn Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Pronghorn's financial statements. Below is selected financial information for the fiscal year ended June 30, 2017 PRONGHORN PHARMACEUTICAL INDUSTRIES SELECTED BALANCE SHEET INFORMATION JUNE 30, 2017 Long-term debt Notes payable, 11% 8% convertible bonds payable 11% bonds payable $980,000 4,910,000 5,910,000 $11,800,000 Total long-term debt Shareholders' equity Preferred stock, 6% cumulative, $50 par value, 108,000 shares authorized, 27,000 shares issued and outstanding Common stock, $1 par, 10,200,000 shares authorized, 1,020,000 shares issued and outstanding Additional paid-in capital Retained earnings $1,350,000 1,020,000 3,970,000 6,050,000 $12,390,000 Total shareholders' equity The following transactions have also occurred at Pronghorn 1. Options were granted on July 1, 2016, to purchase 180,000 shares at $15 per share. Although no options were exercised during fiscal year 2017, the average price per common share during fiscal year 2017 was $20 per shareExplanation / Answer
Part A:
Net Income = 1480000
Less Preferred Dividends = .06*1350000 = 81000
Net Income available to Common Stockholders = 1399000
Basic EPS = Net Income available to Common Stockholders/Commom Stock Outstanding = 1399000/1020000 = 1.37
Part B:
Net Income = 1480000
Less Preferred Dividends = 81000
Add Interest After Tax = 4910000*8%*(1-.40*) = 235680
Net Income available to Common Stockholders = $1634680
Calculation of Common Shares for Diluted EPS
= 1020000 + 4910000*50/1000 + (180000- (15/20X 180000) )
= 1020000+ 245500+ 45000= $1310500
Diluted EPS = Net Income available to Common Stockholders/Calculation of Common Shares for Diluted EPS = $1634680/1310500 = 1.25